The USD index is still trading below the 97.00 mark and the European Equities have also opened lower with FTSE, DAX and CAD down 0.1%, 0.2% and 0.1%, respectively. Earlier in the Asian session, Nikkei 225 closed 0.33% lower and USDJPY fell below 111.00. That said JPY is among the weakest G10 currencies with AUD, NOK and NZD the top gainers.

In the UK, the Manchester Arena terrorist attack saw 22 people killed and this has put the country on red alert and political parties have already announced suspending their election campaign. We have seen little impact on the markets but this attack is the biggest one since 2005 London bombings. Elsewhere, the UK public sector net borrowings reported a further rise in borrowing, above the expected numbers.

Elsewhere, the German and Euro-area Manufacturing PMI (flash) have both come in strong, above expectations, however, the services PMI (flash) underwhelmed expectations. The German IFO business climate was also above expectations and these are another set of numbers that show the Euro-area economy is on the up. We still hold a bullish view on EUR but we are now approaching levels were most of the positive EUR news is priced in.In the US session, the US new home sales are the only data of any significance.

The OPEC meeting is now due on Thursday and the market is now expecting a 9-month extension to the OPEC/non-OPEC producer deal. The Saudis have built market expectations by stating that almost all of the members are on board with either the 9-month extension or deeper production (more than 1.8m/bd cuts) over the next six month. Any deal of less than expectations may push the Crude prices lower. There is still room to build long positions despite the expectations that OPEC will strike an oil production deal; this means that crude prices can push further up even if the outcome from the meeting is same as consensus. In such a scenario the Brent Crude front month is likely to push above the $55 mark. That said, we still see the price to be capped below the $60 mark as there is still a risk of a rise in production from Nigeria, Iraq and Iran that have been unable to scale production in the recent past.

What does this mean for the commodity currencies; AUD, NZD, NOK and CAD are rising fuelled by the surge in oil prices. We have also seen a surge in other commodities including agricultural and metal futures. We see general strength for the Commodity bloc currencies ahead of the OPEC meeting with further upside likely if OPEC can agree on a 9-month extension. That said there is some idiosyncratic risk to CAD from the BoC meeting on Wednesday. Also, the long positions versus EUR and JPY can be fruitful if the positions versus USD seems a more risky option.

USD has recovered overnight with the S&P 500 and Nikkei 225 also closing higher. The US 10 year yields also rallied late last night to close above 2.27%. Fed’s Harker last night was bullish and the probability of a Fed rate hike still remains high (83%) and hence, it is unlikely that FOMC minutes will be able to push the probability of a June rate hike significantly higher given that FOMC minutes are likely to be stale by the recent US political developments.

That said, we will look for any indication of future the pace of tightening and plans for balance sheet tapering. Also, there is a slight downside risk to USD from the FOMC minutes coming in slightly dovish given that FOMC statement had erred on the hawkish side; this scenario, however, is least likely. Elsewhere, ECB President Draghi will speak at 1245 GMT however, we are unlikely to get any hints on ECB June 8th meeting as he is speaking on financial stability.

Oil has had another positive day with WTI front month now pushing above the $51.50 following a reduction of 1.5mn barrels (less than the 2.7mn expected) in the US API crude oil inventories last night. The US EIA will release the official weekly oil stock report today at 1430GMT and risk is skewed to the upside ahead of the OPEC meeting on Thursday Read full article.

The BoC will meet on Wednesday but there is no monetary policy review or press conference. The focus will hence remain on the language that BoC follows with regards to the developments across the border. If the BoC downplays the uncertainty stemming from US political turmoil and provides a similar message to the one that was given previously, we are likely to see CAD upside. That said, any moves in CAD are likely to be tempered ahead of the OPEC meeting.

G10 FX Economic for Wednesday 24/5The US DoE crude inventory data showed a change of -4.43mn compared to -2.4mn expected; the Brent crude front-month jumped testing $54.60 but we haven’t yet seen a break as the DoE data is on the similar lines as API data last night. We don’t see much correction as risk seems skewed to the upside for oil and commodity bloc currencies as a 9-month extension deal from OPEC meeting on Thursday is very much likely. For OPEC timeline click here. For what is expected from OPEC meeting click here.

The BoC downplayed the uncertainty stemming from US political turmoil and recent inflation rate miss. We see a further CAD upside given that the BoC was fairly hawkish; Governing Council judges that the current degree of monetary stimulus is appropriate at present, and maintains the target for the overnight rate at 1/2 per cent” earlier it said "significant uncertainty on the outlook.". That said, OPEC meeting on Thursday is also a big event for CAD and this may temper gains.

The [US 10 year yields also rallied] late last night to close above 2.27%. Fed’s Harker last night was bullish and the probability of a Fed rate hike still remains high (83%) and hence, it is unlikely that [FOMC minutes] will be able to push the probability of a June rate hike significantly higher given that FOMC minutes are likely to be stale by the recent US political developments. That said, we will look for any indication of future the pace of tightening and plans for balance sheet tapering. Also, there is a slight downside risk to USD from the FOMC minutes coming in slightly dovish given that FOMC statement had erred on the hawkish side; this scenario, however, is least likely. Elsewhere, [ECB President Draghi] will speak at 1245 GMT however, we are unlikely to get any hints on ECB June 8th meeting as he is speaking on financial stability.

The key data for the day remains the US durable goods orders at 1230 GMT but with weak numbers expected we don’t see much downside risk to USD. We will also have the US Q1 GDP 2nd estimate at 1230 GMT followed by Michigan consumer sentiments (final) later on. The USD remains subdued but we didn’t see a large scale sell-off despite the FOMC meeting minutes coming on the dovish side. In our view, the USD risks are now skewed to the upside as most of the bad news is priced in and June rate hike is still very much going ahead (given messages from Fed Bullard and Williams last night). GBP has taken a turn for the worse exiting a bull channel versus USD; with the UK election poll 2017 narrowing and the UK GDP second estimate getting revised down on Thursday we see upside as limited. That said, the overall trend on GBPUSD is still intact and fall versus EUR have now gone beyond what could be explained by fundamentals alone. In terms of market sentiments, we have seen Nikkei close 0.61% lower and USDJPY drop 0.64%. JPY is now the top performer in the G10 currencies following above expected Tokyo CPI. The Crude prices have consolidated today after falling sharply yesterday post-OPEC extending oil output cut by 9-month. That said the volatility still remains high and this will continue to impact commodities currencies. In our view, both Oil and commodities currencies (AUD, NZD, CAD and NOK) are likely to improve over the coming days as global outlook looks positive and short-term risks from the US politics are abating.